Sap SE - ADR

Strong Q2 momentum on cloud + backlog (good; foundational for H2) - Cloud revenue +24% YoY to €6.3bn; total revenue +11% to €9.9bn. - Current cloud backlog +26% to ~€23bn, with sequential acceleration; CCB is described as having reversed the prior two quarters’ lag vs cloud growth. - Cloud ERP suite +27% YoY, now 88% of total cloud revenue (SaaS/PaaS strong). - AI + Business Data Cloud embedded in >90% of the 50 largest deals → management confidence for 2H.

Profitability and cash flow (good, but with notable margin headwinds) - Operating profit €2.7bn (+9%) on operating leverage still described as holding over longer windows (not one quarter). - Q2 Free cash flow ~€3bn (robust). - IFRS/non-IFRS margins slightly pressured YoY: IFRS cloud gross margin 74.3%, non-IFRS 74.6%, down 0.7pp (management links AI-related model/ramp and investment mix). - Services revenue dipped slightly because consultants were reallocated to build agents/AI adoption (a trade-off investors should expect).

Outlook unchanged for top line + FCF; operating profit guidance adjusted down (mixed/negative) - Maintained financial outlook for all top-line parameters and free cash flow. - Operating profit outlook reduced by ~€0.1bn due to dilutive impact of Dremio + Prior Labs acquisitions (detailed as very low triple-digit million € impact on H2 for non-IFRS). - Management argues not to upgrade organic operating outlook, citing that Q2 hit reflected multiple quarter-specific factors (including unusually low stock-based comp in Q1, marketing at Sapphire/Autonomous launch, R&D acceleration, and acquisition-related dilution). - Expense-to-revenue framework maintained: target 80–90% expense-to-revenue ratio despite “J-curve” investment effects from M&A and AI transformation.